IN BRIEF:

Cyprus gets last-minute 10-b bailout

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Brussels/Nicosia, Mar 25, 2013, Reuters:,

Mar 25 2013, 22:20pm ist

updated: Mar 25 2013, 22:20pm ist

Cyprus clinched a last-ditch deal with international lenders to shut down its second-largest bank and inflict heavy losses on uninsured depositors, including wealthy Russians, in return for a 10 billion euro bailout.

The agreement came hours before a deadline to avert a collapse of the banking system in fraught negotiations between President Nicos Anastasiades and heads of the European Union, the European Central Bank and the International Monetary Fund.Without a deal, Cyprus's banking system would have collapsed and the country could have become the first to crash out of the European single currency.

Swiftly backed by euro zone finance ministers, the plan will spare the Mediterranean island a financial meltdown by winding down the largely state-owned Popular Bank of Cyprus, also known as Laiki, and shifting deposits below 100,000 euros to the Bank of Cyprus to create a "good bank". Deposits above 100,000 euros in both banks, which are not guaranteed under EU law, will be frozen and used to resolve Laiki's debts and recapitalise Bank of Cyprus through a deposit/equity conversion.

The raid on uninsured Laiki depositors is expected to raise 4.2 billion euros, Eurogroup chairman Jeroen Dijssebloem said. Laiki will effectively be shuttered, with thousands of job losses. Officials said senior bondholders in Laiki would be wiped out and those in Bank of Cyprus would have to make a contribution.

An EU spokesman said no across-the-board levy or tax would be imposed on deposits in Cypriot banks, although the hit on large account holders in the two biggest banks is likely to be far greater than initially planned. A first attempt at a deal last week collapsed when the Cypriot parliament rejected a proposed levy on all deposits.

Cyprus government spokesman Christos Stylianides said, "We averted a disorderly bankruptcy which would have led to an exit of Cyprus from the euro zone with unforeseeable consequences."

Asked about the level of losses on uninsured depositors in Bank of Cyprus, he told state radio, "The assessment is that it will be under or around 30 per cent." The Cyprus central bank said the agreement had also avoided the disorderly default of Laiki Bank. Among Cypriots, there was a mood of wariness about the deal. "How long will it last?" asked Georgia Xenophontos, 23, a hotel receptionist in Nicosia. "Why should anyone believe anything this government says?"

German Finance Minister Wolfgang Schaeuble said Cypriot lawmakers would not need to vote on the new scheme, since they had already enacted a law on procedures for bank resolution.

The EU and IMF required that Cyprus raise 5.8 billion euros from its banking sector towards its own financial rescue in return for 10 billion euros in international loans. The head of the EU rescue fund said Cyprus should receive the first emergency funds in May.

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